The Relation of Prices to Marginal Costs in an Optimum System

  • Harold Hotelling


In the July issue of Econometrica1 I gave a new proof, taking account of the interrelations of commodities by methods not available in the times of Dupuit and Marshall, that in a specified sense maximum welfare requires that the quantity of each good consumed or produced by an individual shall be that corresponding to all sales being at marginal cost. This proposition has revolutionary implications, for example in electric-power and railway economics, in showing that society would do well to cut rates drastically and replace the revenue thus lost by subsidies derived largely from income and inheritance taxes and the site value of land.


Marginal Cost Sales Taxis Unearned Income Toll Charge July Issue 
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Copyright information

© Springer-Verlag New York Inc. 1990

Authors and Affiliations

  • Harold Hotelling
    • 1
  1. 1.Columbia UniversityNew York CityUSA

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